Exam 23: Financial Markets and International Capital Flows

Financial intermediaries, such as commercial banks, help borrowers, particularly small borrowers, by:

When the Chinese government buys U.S. government bonds, from the perspective of the United States, this is a(n):

The coupon rate on newly issued bonds is usually ________ for bonds with favorable tax treatment, such as municipal bonds, and ________ for bonds that are very risky, such as junk bonds.

A legal promise to repay a debt is called:

Banks help savers find productive uses for their funds because banks are specialized in:

Suppose you have $200 with which you can buy shares of stock from two companies: ABC Hot Chocolate Company and XYZ Lemonade. Each company's stock currently sells for $100 per share. If the temperature next year is lower than average, the stock price for ABC will increase by $20, and the stock price for XYZ will not change. If the temperature next year is higher than average, the stock price for XYZ will increase by $20, and the stock price for ABC will not change. There is a 50 percent chance that it will be colder than average next year, and a 25 percent chance that it will be warmer than average. If you purchase one share of ABC stock and one share of XYZ stock, your expected gain will be ________.

If domestic saving is less than domestic investment, then a country will have a ________ and positive net capital ________.

Your financial investments consist of U.S. government bonds maturing in twenty years and shares in a start-up internet company. If interest rates on newly-issued government bonds increase, then the price of your bonds will ________ and the price of the shares you own will ________.

At each value of the domestic interest rate, decreases in the riskiness of domestic assets ________ capital inflows, ________ capital outflows, and ________ net capital inflows.

Each of the following is an example of a financial intermediary EXCEPT a:

Stockholders receive returns on their financial investment in the form of ________ and ________.

Holding constant risk and the real returns available abroad, lower domestic real interest rates ________ capital inflows, ________ capital outflows, and ________ net capital inflows.

In an open economy, an increase in capital inflows ________ the equilibrium domestic real interest rate and ________ the quantity of domestic investment.

Purchases of domestic assets by foreign firms or households is called a:

An increase in the perceived riskiness of Company A stock ________ the risk premium investors require to purchase Company A stock and ________ the price of Company A stock.

At each value of the domestic interest rate, increases in the riskiness of domestic assets ________ capital inflows, ________ capital outflows, and ________ net capital inflows.

You own shares in a well-managed and diversified company. If a booming economy decreases investors' concerns about market risk, then the price of your shares will ________, holding other factors constant.

In an open economy, domestic investment equals:

Regular interest payments made to bondholders are called ________ payments.

One year before maturity, the price of a bond with a principal amount of $1,000 and a coupon rate of 5 percent paid annually fell to $981. The one-year interest rate must be: